Breakingviews - SoftBank gets some help tinkering with valuation

SoftBank Group Corp Chairman and CEO Masayoshi Son speaks at SoftBank World 2017 conference in Tokyo, Japan, July 20, 2017. REUTERS/Issei Kato

HONG KONG (Reuters Breakingviews) - Tiger Global is helping SoftBank narrow its conglomerate discount. Chase Coleman’s hedge fund has built a more than $1 billion stake in the Japanese group, Reuters reported. That should help shrink the gap between what Masayoshi Son thinks his company is worth and its current market value. But valuing SoftBank’s Vision Fund, with stakes in a hodgepodge of startups, is still too complicated.

Son has tried to convince investors of SoftBank’s true worth for years. He’s not just talking his book. Applying individual valuations to SoftBank’s various assets, including stakes in Chinese e-commerce titan Alibaba, semiconductor designer Arm and Sprint, suggests the company is trading at a 55 percent discount to its actual value, CLSA analysts estimated in June.

But one of the trickiest problem is evaluating SoftBank’s one-third share of the Vision Fund, which makes the group look more like a Russian doll. The vehicle, which is looking to raise $100 billion for tech investments, has already backed a swathe of internet upstarts such as shared office outfit WeWork and Indian e-commerce startup Flipkart. SoftBank doesn’t break out separate valuations for these businesses, most of which are private.

Tiger’s punt is far from contrarian. The stock currently has 13 buy ratings and no sell recommendations from analysts polled by Thomson Reuters. An upcoming spinoff of its Japanese mobile arm is expected to unlock more value, as is a proposed sale of Sprint and the mooted floats of ride-hailing giants Uber and Didi Chuxing, in which SoftBank also owns stakes. In a letter to investors reported by the Financial Times, Tiger cites share buybacks, a possible spinoff of the Alibaba stake and a potential return of 2.5 times cost from the Vision Fund as sources of further upside.

And yet the wider market remains unconvinced; shares trade around 10,000 yen each, far below analysts’ mean target price of nearly 12,700 yen. The Vision Fund has yet to prove itself, and its opacity presents an additional risk. What’s more, there’s already talk of a second Vision Fund, which could make valuing the group even harder. SoftBank’s market markdown may shrink a little, but it is unlikely to disappear.

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